Republic of the Philippines meters covering the lot which was earlier sold by
SUPREME COURT installment to [respondents]. The said lot is now covered
Manila
THIRD DIVISION
G.R. No. 147072 May 7, 2002
FRANCISCO H. LU, petitioner,
vs.
Spouses ORLANDO and ROSITA MANIPON, respondents.
PANGANIBAN, J.:
The registration of a sale of real estate will not protect a buyer in
bad faith, for the law cannot be used as a shield for fraud. On the
other hand, the preferential right of a first registrant in a double
sale is always qualified by good faith.
The Case
Before us is a Petition for Review on Certiorari challenging the
October 25, 2000 Decision and the February 9, 2001 Resolution of
the Court of Appeals1 (CA) in CA-GR CV No. 55149. The assailed
Decision disposed as follows:
"WHEREFORE, premises considered, the appealed Decision
is hereby AFFIRMED with MODIFICATION in the sense that
[petitioner] is directed to convey Lot 5582-B-7-D covered
by TCT No. 171497 to [respondent] Rosita C. Manipon
without being entitled to any payment from the latter."2
The assailed Resolution denied the Motion for Reconsideration.3
The Facts
The facts of the case are summarized in the assailed Decision as
follows:
"On May 9, 1981, Juan Peralta executed a [D]eed of [S]ale
by installment in favor of spouses Orlando and Rosita
Manipon [herein respondents]. Therein, Juan Peralta
agreed to sell by installment to the said spouses 350
square meters of the 2,078 square-meter lot he owned,
covered by Transfer Certificate of Title (TCT) No. 137911
and located at Barrio Dilan, Urdaneta, Pangasinan. The
said [D]eed was not registered with the Registry of
Deeds.
"On June 10, 1981, Juan Peralta mortgaged the aforesaid
lot to Thrift Savings and Loan Association, Inc. (TSLAI). He
however failed to pay the loan he obtained for which the
mortgage was constituted and so the same was judicially
foreclosed and sold to TSLAI for P62,789.18 which was
the highest bidder. The latter in turn sold the same on
July 15, 1988 in the amount of P80,000.00 to the
[petitioner]. Thereafter, on August 30, 1989, [petitioner]
caused the subdivision of the said lot into five (5) lots, one
of which is Lot 5582-B-7-D, with an area of 339 square
by TCT No. 171497. In the interim, or on July 30, 1983,
Juan Peralta executed a [D]eed of [S]ale in favor of
[respondents] after the couple paid a total amount of
P8,000.00 for the subject lot. The aforesaid [D]eed was
however also not registered.1âwphi1.nêt
"On January 22, 1990, [petitioner] through counsel wrote
the [respondents] regarding the presence of the latter's
house, which was also being occupied by them, on the lot
in question. Efforts were apparently made by both parties
to settle the brewing dispute but to [no] avail. Hence, on
February 26, 1990, [petitioner] filed the present action
alleging therein that he is the owner of the lot in
question including that which was being occupied by
[respondents. Petitioner] further claims that his
ownership was confirmed by the Regional Trial Court of
Urdaneta, Pangasinan, Branch 49, in Civil Case No. U-4399.
He also averred that for reasons unknown to him,
[respondents] were claiming ownership of Lot 5582-B-7-D
and have constructed a house thereon on January 22,
1990.
"In the Answer filed by [respondents], they claim that
[petitioner] is a buyer in bad faith because even before
he bought the 2,078 square-meter lot, he knew for a fact
that they already bought Lot 5582-B-7-D from the original
owner of the said lot and have been residing therein
since 1981. [Respondents] also asserted that [petitioner]
had knowledge of their claim over the said property
because when the whole lot was foreclosed they shared
the same problem as [petitioner] also bought a lot with
the 2,078 square-meter lot of Juan Peralta.
"Trial ensued and thereafter, the trial court rendered the
questioned judgment. x x x."4 (Citations omitted)
Ruling of the Trial Court
The trial court ruled that petitioner was not a buyer in good faith
despite the fact that was able to register his ownership of the
disputed lot. He admitted knowing that respondents had
constructed a house on the disputed lot in 1984, even before he
purchased the property from the loan association in 1990. Indeed,
he waited more than ten (10) years before contesting respondents'
occupation and possession of the land. The RTC disposed as follows:
"WHEREFORE, IN THE LIGHT OF THE FOREGOING, the
Court renders judgment as follows:
"1). The [petitioner] is hereby ordered to convey to the
herein [respondent] Rosita Manipon, (defendant Orlando
Manipon is already dead) the lot consisting of 339 square
meters denominated as Lot 5582-B-7-D and covered by
Transfer Certificate of Title No. 171497 after paying the
sum of P13,051.50 plus legal interest to the herein
[petitioner] anytime after the finality of this decision.
1
 "2). The third-party defendant, Juan Peralta, is ordered to
refund to the defendants Manipons the amount of
P18,000.00 paid by the latter to him;
"3). x x x no pronouncement as to damages in favor [of] or
against either of the parties."5
Ruling of the Court of Appeals
The CA affirmed the Decision of the trial court with the
modification that respondents would no longer be required to pay
petitioner the value of the disputed portion in a "forced sale." The
appellate court said that petitioner knew that Lot 5582-B-7-D had
already been sold by Juan Peralta to respondents before the mother
lot was mortgaged, foreclosed and eventually purchased. He bought
the entire property from the foreclosing bank, because he feared
that he might lose what he had earlier bought in 1981 – a 350
square meter lot which also formed part of the mother lot.
Hence, this Petition.6
The Issues
In his Memorandum,7 petitioner raises the following issues:
"1. Who between petitioner and respondents have a
better right of ownership over the lot in question, Lot
5582-B-7-D, with an area of 339 square meters?
"2. Whether respondents' claim over the lot can rise
[above that of] their predecessor in interest Juan Peralta[.]
"3. Whether respondents are under estoppel to question
petitioner's ownership over the lot in question[.]
"4. Whether petitioner was in bad faith in the acquisition
of the lot in question[.]
"5. And even assuming without admitting that petitioner is
under obligation to convey the lot in question in favor of
respondents, whether the consideration of the lot be paid
by respondent is P2,000.00 per square meter[.]"8
These issues can be summed up into three questions: (1) who has a
better right to the disputed property? (2) was petitioner a purchaser
in bad faith? and (3) what should be the purchase price of the
disputed lot?
This Court's Ruling
The Petition is partly meritorious.
First Issue:
Better Right to the Disputed Lot
Petitioner claims to have a better right to the disputed portion of
the real property. First, although respondents had bought it first, he
was the first to register his purchase of the mother lot. Second,
respondents' ownership follows that of their vendor who mortgaged
to the bank his title to the mother lot and failed to redeem it.
Petitioner avers that, although respondents purchased the disputed
lot by installment on May 9, 1981 and fully paid for it on May 30,
1983, they failed to register their sale with the Registry of Deeds. In
the meantime, on June 18, 1981, Juan Peralta mortgaged the
mother lot – including the disputed portion – to the Thrift Savings
and Loan Association, Inc. (TSLAI). The mortgage was foreclosed and
the property sold on July 10, 1988. Petitioner, on the other hand,
bought the whole lot from the bank for P80,000 on July 15, 1988 and
registered it in his name on September 23, 1988.
Third, petitioner claims that from the time respondents fully paid for
the lot until they received a Notice to Vacate, they did not do
anything to perfect their title thereto; hence, they are now
estopped from questioning his ownership of it.
DECISION
We are not convinced. In estoppel, a person who by deed or
conduct induces another to act in a particular manner is barred
from adopting an inconsistent position, attitude or course of
conduct that thereby causes loss or injury to another.9 This
equitable principle will not apply to respondents, because they
exercised dominion over the property by occupying and building their
house on it. On the other hand, it was petitioner who, despite having
knowledge of the existence of respondents' house on the disputed
portion, bought the whole lot. Before acquiring the mother lot from
the bank, he knew of respondents' claim of ownership and
occupation. He cannot now pretend to be an innocent buyer in
good faith.
Registration is not the equivalent of title.10 Under the Torrens
system, registration only gives validity to the transfer or creates a
lien upon the land.11 It was not established as a means of acquiring
title to private land because it merely confirms, but does not confer,
ownership.12 Moreover, the RTC and the CA have correctly ruled
that the preferential right of the first registrant of a real property in
a case of double sale is always qualified by good faith under Article
154413 of the Civil Code.14 A holder in bad faith of a certificate of
title is not entitled to the protection of the law, for the law cannot
be used as a shield for fraud.15
"When the registration of a sale is not made in good faith,
a party cannot base his preference of title thereon,
because the law will not protect anything done in bad
faith. Bad faith renders the registration futile. Thus, if a
vendee registers the sale in his favor after he has acquired
knowledge that there was a previous sale of the same
property to a third party, or that another person claims
said property under a previous sale, or that the property is
in the possession of one who is not a vendor, or that there
were flaws and defects in the vendor's title, or that this
was in dispute, the registration will constitute x x x bad
faith, and will not confer upon him any preferential right.
The situation will be the same as if there had been no
registration, and the vendee who first took possession of
the real property in good faith shall be preferred."16
2
Equally important, under Section 44 of the Property Registration
Decree (Presidential Decree No. 1529), every registered owner
receiving a certificate of title in pursuance of a decree of registration
and every subsequent purchaser of registered land taking such
certificate for value and in good faith shall hold the same free from
all encumbrances, except those noted on the certificate and
enumerated therein. Petitioner is evidently not a subsequent
purchaser in good faith. Therefore, between the parties,
respondents have a better right to the property based on the
concurring factual findings of both the trial and the appellate
courts. We quote with approval the following ruling of the CA:
"x x x We are persuaded that [petitioner] knew of the fact
that Lot 5582-B-7-D was sold by Juan Peralta to
[respondents] before Lot 5582-B-7, the mother lot of Lot
5582-B-7-D, was mortgaged, foreclosed, sold and [its
ownership] transferred x x x to him. In fact, [w]e are
convinced that the main reason why [petitioner] bought
the entire lot from the TSLAI was hi fear of losing the 350
square meter-lot he bought sometime in 1981 which also
forms part of Lot 5582-B-7. Having been aware of the
'defects' in the title of TSLAI as far as Lot 5582-B-7-D is
concerned, he cannot now claim to be a purchaser in good
faith and for value even if he traces his ownership [to]
TSLAI which [w]e believe was a purchaser in good faith –
the latter not being aware of the sale that transpired
between the [respondents] and Juan Peralta before Lot
5582-B-7 was sold to it in a public auction.
"One who purchases real estate with knowledge of a
defect or lack of title in his vendor cannot claim that he
has acquired title thereto in good faith as against the true
owner of the land or an interest therein. Thus, even
assuming arguendo that [petitioner] was not aware of the
sale between Juan Peralta and the [respondents], still he
cannot be considered as a purchaser in good faith because
he had personal knowledge of [respondents'] occupation
of the lot in question. This fact alone should have put him
on guard before buying the land. But as he admitted
during the trial, he was not interested in the
[respondents'] reason for occupying the said lot[;] all that
he was interested in was to buy the entire lot. This 'devil-
may-care' attitude of [petitioner] has placed him where he
is now. Consequently, he cannot be entitled to the relief
he is seeking before this [c]ourt.
"True, the purchaser of a registered land is not required to
go behind the title to determine the condition of the
property. However, a purchaser cannot close his eyes to
facts which should put a reasonable man upon his guard
and then claim that he acted in good faith under the belief
that there was no defect in the title of the vendor. His mere
refusal to believe that such defect exists, or his wilful
closing of his eyes to the possibility of the existence of a
defect in his vendor's title, will not make him an innocent
purchaser for value, if it afterwards develops that the
title was in fact defective, and it appears that he had such
notice of the defect as would have led to its discovery had
he acted with that measure of precaution which may
reasonably be required of a prudent man in a like
situation."17
All told, the right of a buyer to rely upon the face of the title
certificate and to dispense with the need of inquiring further is
upheld only when the party concerned had no actual knowledge of
facts and circumstances that should impel a reasonably cautious
man to conduct further inquiry.18
Second Issue:
Bad Faith
Petitioner denies being a purchaser in bad faith. He alleges that the
only reason he spoke to the respondents before he bought the
foreclosed land was to invite them to share in the purchase price,
but they turned him down. This, he argues, was not an indication of
bad faith.
Petitioner's contention is untenable. He might have had good
intentions at heart, but it is not the intention that makes one an
innocent buyer. A purchaser in good faith or an innocent purchaser
for value is one who buys property and pays a full and fair price for
it, at the time of the purchase or before any notice of some other
person's claim on or interest in it.19 One cannot close one's eyes to
facts that should put a reasonable person on guard and still claim to
have acted in good faith. As aptly explained by Vitug:
"The governing principle is prius tempore, potior jure (first
in time, stronger in right). Knowledge by the first buyer of
the second sale cannot defeat the first buyer's rights
except when the second buyer first registers in good faith
the second sale (Olivares vs. Gonzales, 159 SCRA 33.)
Conversely, knowledge gained by the second buyer of the
first sale defeats his rights even if he is first to register,
since such knowledge taints his registration with bad
faith (see also Astorga vs. Court of Appeals, G.R. No.
58530, 26 December 1984). In Cruz vs. Cabaña (G.R. No.
56232, 22 June 1984; 129 SCRA 656), it was held that it is
essential, to merit the protection of Art. 1544, second
paragraph, that the second realty buyer must act in good
faith in registering his deed of sale (citing Carbonell vs.
Court of Appeals, 69 SCRA 99, Crisostomo vs. CA, G.R.
95843, 02 September 1992).1âwphi1.nêt
"The registration contemplated under Art. 1544 has been
held to refer to registration under Act 496 Land
Registration Act (now PD 1529) which considers the act of
registration as the operative act that binds the land
(see Mediante vs. Rosabal, 1 O.G. [12] 900, Garcia vs.
Rosabal, 73 Phil 694). On lands covered by the Torrens
System, the purchaser acquires such rights and interest as
they appear in the certificate of title, unaffected by any
prior lien or encumbrance not noted therein. The
purchaser is not required to explore farther than what the
Torrens title, upon its face, indicates. The only exception is
where the purchaser has actual knowledge of a flaw or
defect in the title of the seller or of such liens or
encumbrances which, as to him, is equivalent to
registration (see Sec. 39, Act 496; Bernales vs. IAC, G.R.
75336, 18 October 1988; Hernandez vs. Sales, 69 Phil 744;
Tajonera vs. Court of Appeals, L-26677, 27 March 1981)."20
3
By his own allegations, petitioner admits he was not a purchaser in
good faith. A buyer of real property which is in the possession of
another must be wary and investigate the rights of the latter.
Otherwise, without such inquiry, the buyer cannot be said to be in
good faith.21

Basic is the rule that the factual findings of the appellate court are
given great weight, even finality, when they affirm those of the trial
court,22 unless they fall under the exceptions enumerated in Fuentes
v. Court of Appeals.23 Petitioner has not shown that this case falls
under any of those exceptions; hence, we find no cogent reason to
depart from this general rule.

Third Issue:

Proper Purchase Price

Petitioner protests respondents' exception from paying

him P13,051.50 with legal interest for the conveyance of the
disputed portion. Instead, he pleads that this Court modify the price
to P2,000 per square meter.

We are not persuaded. While neither party appealed the issue of the
purchase price, petitioner did question the conveyance of Lot 5582-
B-7-D to respondents upon payment of the said price. Hence, the
payment was also effectively put in issue. It is well-settled that
appellate courts have ample authority to rule on matters not
specifically assigned as errors in an appeal, if these are indispensable
or necessary to the just resolution of the pleaded issues. 24

However, the CA modification exempting respondents from paying

petitioner is flawed, because the RTC had ordered Juan Peralta to
refund the P18,000 paid to him by petitioner as the purchase price
of the disputed lot. Thus, the trial court correctly ordered (1)
respondents to pay petitioner 13,051.5025 plus legal interest for Lot
5582-B-7-D and (2) the third-party defendant Peralta to refund to
respondents the P18,000 they had paid for the lot. The CA ruling
would unjustly enrich respondents, who would receive double
compensation. In short, the RTC ruling should have been affirmed in
its entirety.1âwphi1.nêt

WHEREFORE, the Petition is PARTLY GRANTED. The assailed

Decision and Resolution are AFFIRMED without
the MODIFICATION ordered by the CA. No pronouncement as to
costs.

SO ORDERED.

Melo, Vitug, Sandoval-Gutierrez, and Carpio, JJ., concur.